Political Connection and Firm Value

James S. Ang, David Ding and Tiong Yang Thong
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James S. Ang: Professor of Finance at the College of Business, Florida State University
Tiong Yang Thong: Lecturer of Finance at the Lee Kong Chian School of Business, Singapore Management University

Asian Development Review, 2013, vol. 30, issue 2, 131-166

Abstract: We study the effect of political connection (PC) on company value in an environment where low PC is due to better institutions and not confounded by favorable social/cultural factors. We find that in Singapore, the only country that fits this description, PC in general adds little to the value of a company. However, in industries that are subject to more stringent government regulations, PC appears to be somewhat important. Robustness checks show that alternative PC variables give rise to similar results, and the addition of control variables do not drastically change the findings. Politically connected firms have higher managerial ownership and tend to be smaller than non-PC firms, rendering them more susceptible to poorer governance practices. We show that the presence of politically connected directors somewhat neutralizes such potential negative effects. PC firms are associated with good governance practices such as nonduality in their chairman and chief executive officer positions and fewer executive directors. © 2013 Asian Development Bank and Asian Development Bank Institute.

Keywords: political connection; corporate governance; firm value; Singapore (search for similar items in EconPapers)
JEL-codes: G32 G34 O53 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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